Tuesday, July 29, 2008

The good driving monitor

A while ago I reported the dilemma of a teenager whose stepfather had insisted on his having a GPS unit installed in his car -- and who stood to get out of a speeding ticket as a result. Now car insurance companies are offering the same dilemma to the market at large. Put a monitoring device in your car, and if it shows you drive carefully they'll reduce your rates. If it doesn't -- and keep in mind that everyone thinks they're an above-average driver -- your rates will go up, though not by as much. Here's the breakdown for one company, in relative terms:
  • If the monitor convinces them you drive the way they like, you pay $0.60
  • If you don't need no stinking monitor, you pay $1.00
  • If the monitor convinces them you drive badly, you pay $1.09
In other words, you're more or less guilty until proven innocent. Not that that's wrong. This is business, not a court of law.

Privacy advocates, naturally, have a problem with this. The problem is not the monitoring per se, but that the company effectively owns the data. I don't see why it should have to be that way. Suppose you own your driving data. You can choose to sell access to it in return for cheaper insurance, or you can decline, in which case your insurer will presume you have a reason.

And that's the more subtle consequence: You could be a perfectly good driver, but not like the idea of turning that information over to The Man, and end up paying for the privilege. That's actualy not the case at the moment. The non-monitored driver currently pays less than the monitored "bad" driver. That seems like an unstable situation, though. If such monitors become widespread, the presumptions change, and in any case the actuarial risk has to show up somewhere. Some possibilities:
  • Require that everyone pay the same rate, no matter what. There's no need to gather driving data, but dangerous drivers pay less at the expense of safer drivers.
  • Prohibit the use of monitor data in setting rates, but allow accidents, speeding tickets and such to count, as they do now (at least in the US).
  • Allow the use of monitor data, but prohibit companies from charging more than X to customers who decline to supply the data. If X is the lowest rate, then no one will volunteer and we're back to the first case. If X is the worst rate, then the non-volunteer rate will come up and/or the worst rate will come down to eliminate the $0.09 difference.
  • Do nothing and see what happens.
In other words (and I should probably throw in the "I'm not an economist" disclaimer here), if this sort of thing catches on it looks like it would be very hard to prevent insurers from -- rationally -- charging non-volunteers the same rate as demonstrably unsafe drivers.

However, that doesn't mean people can't have control over whether they volunteer the information or not. There are at least two ways to do this. One, which I mentioned in a follow-up, is for you to own your own monitor and decide whether to let it yield up its secrets. The other, which would have much the same effect, would be for your monitor to send its data to your personal datastore, whence you could share it out as you saw fit. In either case the monitor needs to be tamper-resistant, but that's a given.

In any case, add this to the list of "Who owns the data?" cases where the initial answer is "a particular private company" but the eventual answer ought to be "you".


Earl said...

The way it works now, and will always work, is that insurers are financially motivated to work against the basic principle of insurance, which is to spread the risk among a large pool. To the extent that insurers can divide their pool into smaller pools whose risks are better known, and to the extent that they can differentiate their rates based on that knowledge, they make more money.

David Hull said...

Note to self: it doesn't seem like this really caught on.